Delta bonds ease on company plan to remain independent; Northwest falls; Adelphia better after hours

By Ronda Fears and Sara Rosenberg

Memphis, Dec. 19 - There were no big surprises in Delta Air Lines Inc.'s preliminary reorganization plan, namely that it purports to best the US Airways Group Inc. bid of roughly $8 billion by as much as $2 billion. But Delta bonds were weaker on the event, and Northwest Airlines Inc. bonds fell as much as 3 points on the session.

As expected, Delta also said its board of directors, with the full support of management, unanimously rejected the unsolicited merger proposal made by US Airways on Nov. 15.

The Delta plan pegs is debt recoveries between 63% and 80%, with unsecured creditors getting new common shares, so the Delta unsecured bonds came in about a point across the board, traders said, to the 65 bid area. Current holders of Delta common stock will receive no distribution.

Northwest's bonds, on the other hand, came in 2 to 3 points to the 91.5 bid area from the mid-90s.

"The Northwest paper just got way ahead of the game," as one trader put it.

While Delta noted that it had met with bankers and creditor to highlight the plan tents last week, it was clear that there were some matters still in discussion, such as a possible equity rights offering to come up with a cash component.

Metaldyne bank paper tight

Elsewhere, in bank debt circles, Metaldyne Corp. firmed up pricing on its institutional tranches at Libor plus 375 bps, the tight end of original guidance of Libor plus 375 to 400 bps, according to a market source.

The institutional debt is comprised of a $420 million seven-year term loan (B2/B), a $25 million seven-year delayed-draw term loan (B2/B) and a $60 million five-year deposit linked synthetic supplemental letter-of-credit facility (B2/B).

The delayed-draw term loan will be available for drawing for 59 days after the closing date for the purpose of funding the purchase of senior notes in a tender offer.

Metaldyne's $655 million credit facility also includes a $150 million five-year asset-based revolver (Ba3/BB-) priced at Libor plus 200 bps with unused fees that can range from 25 to 50 bps. There is a $75 million accordion feature under the asset-based revolver.

Proceeds from the credit facility will be used to help back Asahi Tec Corp.'s approximately $1.13 billion acquisition of the company and to replace Metaldyne's existing revolver, letter-of-credit facility, term loan debt and off-balance sheet accounts receivable securitization facility.

Asahi Tec, a Shizuoka, Japan-based chassis and powertrain component supplier, is buying Metaldyne - a Plymouth, Mich., supplier of powertrain and chassis systems and components - from Heartland Industrial Partners LP and CSFB Private Equity.

Delta feeling market on cash

Delta was the big story of the session, however, and traders said the lack of cash in the company's reorganization plan was a focal point.

"It was pretty standard," said one trader. "The sticking point, it seems, was that the US Airways offer would put $4 billion in their [unsecured creditors'] hands and Delta is not offering any cash."

Delta's plan included a valuation analysis prepared by The Blackstone Group that pegs equity value for the company at $9.4 billion to $12 billion, which would translate into a recovery for Delta's unsecured creditors of around 63% to 80% of their allowed claims.

And, while Delta held out its plan as superior to that of US Airways' it was noted on the company's conference call that US Airways was offering $4 billion in cash - half of its original $8 billion bid made Nov. 15. US Airways' offer was for $4 billion in cash and 78.5 million US Airways shares. US Airways shares on Tuesday gained 3% to settle at $57.50, putting the offer worth more than $8.5 billion.

Referring to Delta creditors as "disenfranchised," Bear Stearns airline analyst David Strine asked on the call, "How are you accounting for the fact that the US Airways plan gives them cash on the barrelhead? Half of that offer is for cash."

Delta chief executive Gerald Grinstein said there were still discussions of a possible equity rights offering that would provide some cash to distribute, but those details have not been worked out.

"We are anxious to hear from the market as to the importance of the cash component to the creditors," Grinstein said.

He said there are parties interested in making a capital infusion, but he did not identify them.

Delta sees profitability in 2007

Delta said that aside from strides it has already made since filing bankruptcy in September 2005, weighted down by more than $17 billion in debt, its five-year business plan - a part of the total reorganization package - would return the No. 3 domestic carrier to profitability.

By its description, Delta said its bankruptcy filing launched a comprehensive restructuring plan to realize $3 billion in annual financial improvements by the end of 2007. As of Sept. 30, 2006, the company said it had achieved 85% of that goal and had $2.8 billion of cash equivalents and short-term investments.

The five-year business plan projects operating margins from 8% in 2007 to 10.5% in 2010, EBITDAR margins from 15.7% in 2007 to 17.8% in 2010, and a more than 50% reduction in net long-term debt to around $7.5 billion in 2007.

Moreover, the company said the plan would return the Atlanta-based carrier to profitability in 2007 and an increase in net income, after profit sharing, to about $1.2 billion in 2010 from about $500 million in 2007.

Delta pans US Airways offer

Adhering to its resistance to a merger with US Airways since the hostile bid emerged Nov. 15, Delta outlined in a separate press release several concerns in that offer that it described as "insurmountable hurdles," including a view that the deal would not pass antitrust scrutiny.

More importantly, perhaps, Delta asserted that under the US Airways offer the combined carrier would "have the highest total debt load in the airline industry - approximately $23 billion - which would seriously limit its financial flexibility and ability to withstand the volatility of the industry."

In the Delta conference call, CEO Grinstein added, "In this business that is a recipe for disaster."

US Airways may boost offer

Yet, even though by some creditors' view that the US Airways bid already is superior due to its cash component, one buysider said there is strong incentive for the smaller Tempe, Ariz.-based rival to up its bid for Delta.

"Delta has about $3 billion in the bank that US Airway would get, so it would only cost US Airways $1 billion to do this deal," a buyside fixed-income analyst said.

"But, the kicker is that the new combined company would save $1 billion or more by joining and laying off employees; even Parker [US Airways CEO Douglas Parker] admits that. US Airways really needs this deal. The way I see it, if US Airways does not buy Delta, it will have big problems, as the new Delta - the reorganized Delta - will have lower cost than US Airways and that will cost billions in the years to come."

In other words, the analyst said, "I don't see where US Airways has much of a choice but to increase its offer."

Sea Containers add 2 points

For the week, Sea Containers Ltd. bonds are better by 2 points, to levels not seen since just before the Bermuda-based maritime group filed bankruptcy in mid-October.

The 10½% notes due 2012 went out at 74, the 7 7/8% notes due 2008 at 71.5 and the 10¾% bonds due 2006, which gained to 75.

"They are back up to pre-bankruptcy levels, or the highest they have been since the company filed bankruptcy," one distressed bond trader said.

The trader said the rise in the bonds probably was not due to news from Friday, however, that its subsidiary Great North Eastern Railway, GNER, has entered into a management agreement with the United Kingdom under which it will operate the East Coast Mainline.

"There was buying with very little supply; two-thirds of the issue is held in restricted hand," the trader continued, speculating the rise was because "buyers want to push up the bond prices to get better marks for year-end."

There had been a steady uptick in Sea Containers bonds in recent weeks on speculation in reports from Finland of a possible sale of its SuperSeaCat ferry operator unit, but nothing more has surfaced along those lines.

Observers had speculated that Sea Containers' SuperSeaCat fast ferry business would be a good fit for the Finland ferry group Viking Line. Sea Containers has already sold its Finnish ferry business Silja Line for €450 million.

But there also are onlookers who think that a sell-off of those assets will not leave much for Sea Containers in the way of an ongoing concern to resolve its debt.

Solutia bonds go to 95.5

Elsewhere, Solutia Inc. bonds continued to firm, with the bonds better by a point at 95.5, still finding buying interest from news last week that the bankrupt St. Louis-based chemical company has inked a deal to buy out Dutch chemical firm Akzo Nobel NV's stake in Flexsys - the 50/50 rubber chemicals joint venture between the two - as well as Akzo Nobel's Crystex business in Japan.

Brussels, Belgium-based Flexsys, which supplies chemicals that cure and protect rubber, posted 2005 sales of about $600 million. Akzo Nobel and Solutia formed the joint venture in 1995.

Financial terms of the deal were not disclosed, but Solutia also said it expects to fund the purchase through a combination of sources, including a portion of a new extended debtor-in-possession financing package. Separately, Solutia said Friday that it has received full commitments for $1.075 billion of DIP financing, maturing March 31, 2008.

The DIP amendment, which is a $250 million increase and one-year extension over its current financing, also enables Solutia to fund mandatory pension payments that come due next year, according to the company. The company said up to $150 million of additional funds could be raised under this DIP financing through an accordion feature, bringing the total to $1.225 billion.

Granite bonds, preferreds rise

Granite Broadcasting Corp.'s bonds and preferreds continue to find buyers as the year-end approaches, as well, traders said.

The bonds added a point or so Tuesday to 96.25, and the preferreds traded up similarly to close at 7.5 bid with an offer at 10.

Last week, New York-based television station operator Granite filed a prepackaged bankruptcy filing, which was no big surprise.

"We've always believed these bonds are money good," one distressed bond trader said.

Under the prepackaged reorganization plan, current secured debtholders will exchange their notes for a combination of new notes and new common stock. And, current common and preferred stockholders will exchange their existing stock for shares of the newly reorganized company. The company expects to exit bankruptcy around mid-2007.

Time Warner Cable values up

A trader saw some late activity in defunct Adelphia Communications Corp. bonds Tuesday, after the company announced an increase in the valuation of Time Warner Cable shares being distributed to its creditors to $6.5 billion from a previous $5.4 billion.

He called Adelphia's 7 5/8% notes at 93, up 2 points in after-hours trading.

"Guys are scrambling right now to see where the paper is," the trader said.

Another trader, however, saw Adelphia's 10¼% notes due 2011 at 95 bid, 96 offered with "no real run."

Meanwhile, Bear Stearns entertainment analyst Spencer Wang said in a report Tuesday that he anticipates the new Time Warner Cable shares - resulting from the complicated acquisition of Adelphia by Comcast Corp. and Time Warner Inc. announced in April 2005 - could begin trading as early as Jan. 5.

"Investors have eagerly awaited the new Time Warner Cable [stock] to begin trading publicly," Wang said.

"In our view, given the faster bankruptcy timetable, the mechanism for this floatation is unlikely to be the conventional IPO process. Additionally, an IPO would subject Adelphia stakeholders to transaction costs and an IPO discount, while for Time Warner, an IPO would be time consuming, distracting, and includes registration expenses.

"We view an IPO as suboptimal for both parties."

Wang said he believes Adelphia's latest and fifth amended plan of reorganization will be confirmed as soon as this Friday, "as it appears that a sufficient number of creditors have agreed to the plan" and, once confirmed, Time Warner Cable will pursue a listing on the NYSE.

"By agreement, no sooner than two weeks following the filing of its 8-K, Time Warner Cable is expected to file an 8-A registering its shares and paving the way for Time Warner Cable shares to begin trading on the NYSE. Trading on the NYSE could begin as early as Jan. 5, 2007."

Greenwood Village, Colo.-based cable operator Adelphia filed for bankruptcy in June 2002.

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